2017 has already come and gone and while it may have seemed like a volatile year from a political perspective, it was actually a very stable rise in the investment markets. In fact the VIX, a measure of volatility in the markets, was one of the lowest on record we have seen in this decade. Often when we have had such periods of market stability, investors underestimate market risk. Here are some financial headwinds to avoid in 2018:
- Borrowing costs will likely rise in 2018.
The economy’s improving, and chances are interest rates will go up. Are you ready?
- Consider interest rates before taking on more debt.
If you have a variable-rate mortgage or a home-equity line of credit, expect your interest rate to keep pace with these increases. Protect yourself by paying down your debts.
- Dealing with low savings rates.
Rates on savings account will probably remain unchanged. Waiting for your big bank to boost savings rates to meaningful levels – equal to the cost of living, or better – is point- less. Search for an online bank with a competitive return on savings. My favorite online site for great rates is Ratehub.ca
- Following the crowd when it comes to crypto currencies.
There’s a gold-rush aspect to bitcoin and other crypto currencies, but it’s also a technology story, an investing story and a testament to how trust in public institutions is decaying. Remember, bitcoin is a virtual currency that isn’t backed by anything tangible such as a government and its central bank.
- Not having a diversified portfolio.
A common reason why stock markets crash is fear of recession. The economies in the United States, Canada and elsewhere seem to be improving, which should be good news for stocks. But there’s a feeling of complacency about risk these days that has to be acknowledged. DON’T forget bonds or GICs still have a place in your portfolio.
- Not understanding what you are paying for investment management fees.
It’s hard to find an investing expert who doesn’t believe we’re in an era of more modest investment returns than we’ve seen in previous periods. Current returns may be a temporary bubble. Lowering fees is one way to get back. Look at what you pay, and what you get for the money. An advisor who skillfully manages your portfolio, your retirement plan and your tax situation may be worth the money.